Santander Consumer USA announced a series of executive changes last week, leaving many asking why? One explanation may be that it’s a way to bolster its relationship with Fiat Chrysler Automobiles, Christopher Donat, managing director of equity research at Sandler O’Neill, told Auto Finance News.
“[FCA] is their single most important relationship so it makes sense that they would work to strengthen that,” Donat said.
Santander is the OEM’s most used finance provider with a 20% penetration rate in the second quarter, up from 19% the prior quarter, the lender reported in earnings.
Due to the importance of that relationship, Santander appointed Rich Morrin as president of Chrysler Capital to focus on SC’s major relationships.
“They are making one person responsible who has been at Santander for a few years,” Donat said. “Chrysler might be a little bit concerned with the management turnover lately and they want more continuity than change.”
Santander itself played up FCA’s importance. “Our relationship with Chrysler is a key part of our business and our strategy,” a spokeswoman told AFN. “Rich’s new role, with its focus on Chrysler, underscores that.”
Despite the increased focus, Chrysler Capital loan volume was down 13% year over year in the second quarter, to $1.8 billion in originations. The drop was largely due to a 30% year-over-year decline in prime originations with a Fico score greater than 640.
In March, Santander Consumer inked a $750 million flow agreement with its parent Banco Santander, which increased dealer floorplanning 44%, according to first-quarter earnings. The flow agreement is key because SC is market-funded, not deposit funded like other U.S. banking institutions, the company previously told AFN.
As Santander Consumer and Santander Holdings USA begin to work more closely together under the same chief executive — Scott Powell was named the leader of both in August — the funds from Banco Santander may flow more easily in order to capture those prime loans. However, it still might not be enough, Donat said.
“Negotiating the flow agreement was complicated before because they had to act like they were arms-length companies, rather than being under the same broader corporate entity,” he said. “It helps, but it might be incremental and they still might have to have an extended negotiating process.”
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